Coping with debt – what are your options?

If you are in debt, you may be wondering how you should go about clearing it.

Well, the answer depends on your individual circumstances – in other words… it depends on how much debt you have, how many creditors you owe money to and your current income (amongst other things).

To give you an idea of some of the options available to you to help clear your debts, take a look at the information provided below.

Seek debt advice

Debt advice is available to anyone who wants it. It is often offered for free, and that's one reason so many people choose to seek debt advice, rather than trying to deal with their debts on their own.

By seeking debt advice, you can share your problem with someone who understands how stressful being in debt can be. The right debt adviser will be able to assess your situation and let you know what they think is the best way to clear your debts.

This may simply be a few tips on how to improve your money-management skills. However, in some cases – if your debt problem is more serious – they may recommend a specific debt solution that can help you clear your debts.

Enter a debt solution

There are several debt solutions available that could help you address your debts. Each solution differs from the others, and is suitable for people in different circumstances. Here, we will take a look at just three.

1. Debt consolidation

Debt consolidation involves taking out a new loan big enough to repay all your existing unsecured debts in one go. This can help to simplify your finances, and therefore make it easier to keep on top of your debt repayments each month.

If you consolidate your debts, you will be left with one payment to make each month (instead of several). You may want to take the opportunity to slow down the rate at which you are repaying your debts. You can do this by arranging to repay the loan over a longer period of time, which will reduce your monthly repayments. Just note that repaying any debt more slowly can add to the total cost, thanks to interest.

2. Debt management

Debt management is more likely to be appropriate for people who cannot keep up with their monthly repayments as they had originally agreed, but who can afford to repay their debt within a reasonable timeframe (as long as their lenders agree to a few changes to the way they're repaying it).

If you enter a debt management plan, your lenders will be asked to accept changes to the original repayment agreement. This could mean they'll accept lower monthly payments and/or agree to a freeze/reduction in interest and charges – which should help you repay your debts at an affordable and realistic rate.

3. IVA (Individual Voluntary Arrangement)

An IVA is a legally binding debt solution that could be suitable for you if you have an unmanageable level of unsecured debt that you can't afford to repay but that you can commit to making regular reduced payments towards.

If you enter an IVA, you will be required (in most cases) to make regular reduced payments for a total of five years. Providing you can commit to doing this, your creditors may agree to write off the portion of your debt you can't afford to repay.

Entering a debt management plan or IVA will, however, affect your credit rating, adding to the cost / difficulty of obtaining further credit for the six years it stays on your credit report.